ECSH63190 - Regulation 4 - Meaning of business relationship
The Law Regulation 4 - Meaning of business relationship
What it means
A relevant person is deemed to enter into a business relationship with a customer when it (a) engages with a customer in connection with the relevant person's supervised activity and (b) there is expected to be an element of duration. If the transaction isn't carried out as part of a business relationship, it is an "occasional transaction" as set out in the General interpretation in Regulation 3.
Purpose
The relationship between a business and its customer(s) will dictate which of the MLRs apply to a transaction.
Time Line
This was also requirement under MLR2007 (regulation 2) There was a similar requirement in MLR2003 but ongoing business relationships formed prior to supervision were out of scope.
What to establish
4(1)(a) - Does the activity arise out of the relevant person's business? Applies to all sectors. 4(1)(b) - Is there an expectation by the relevant person, at the time contact is established, that there will be an element of duration? Applies to all sectors. 4(2) - Is the formation of a company the only service for the customer? If yes, it is a business relationship. Applies to TCSPs only. 4(3) - Has a purchaser's offer been accepted? If yes, it is a business relationship. Applies to EABs only. Is it an 'occasional transaction'? If yes, it is not a business relationship.
How to test compliance and evidence to obtain
Ask the relevant person/business to explain the relevant (supervised) activities being undertaken and the relationship between the relevant person/business and its customers. Obtain copies of contracts, T&Cs, agreements etc. Note: the contract may not be in writing, in which case the evidence may be within correspondence or agreed notes of meeting.
Best Practice
Sector specific information:
AMP
Usually not a business relationship for one-off purchases of art. Might be if there is a contract to provide regular services (such as to source multiple paintings) or if customers have credit or loan arrangements. Receiving regular marketing material or attending events, such as gallery openings does not constitute a business relationship. See para 56 of BAMF AML guidance.
ASP
Anti-Money Laundering and Counter-Terrorist Financing Guidance for the Accountancy Sector
EAB
Estate and letting agency business guidance for money laundering supervision
The regulation defines that a business relationship is established with the purchaser at the point when their offer is accepted by the seller Applies to both the person who is letting the land and the person who is renting it - see Regulation 27(7B).
HVD
High value dealer guidance for money laundering supervision
A returning customer making a number of separate cash payments over a period of time is not considered to be in a business relationship.
MSB
Where a customer account or membership number is set up to facilitate future transactions, this would indicate a business relationship.
TCSP
Usually established with all clients, including one-off company formation (as defined in the regulation). See para 4.8 of TCSP Guidance.
Further Reading
General Interpretation - see Regulation 3
Requirement to apply CDD - see Regulation 27
Timing of verification - see Regulation 30
Simplified due diligence - see Regulation 37
FAQs
Where there is no business relationship as defined above, there is no requirement for ongoing monitoring, even if there are repeat (occasional) transactions.